12-06-2013, 08:01 PM
I essentially use a Dividend Discount Model analysis or Discounted Cash Flow analysis and combine my numbers with what Morningstar and S&P Capital IQ publish. I then average these numbers together to get a reasonable valuation range.
In the end, valuing a stock is part art and science. You're using hard numbers for past earnings and/or dividends, but you're also guessing at a growth rate. You can only assume a reasonable range for valuation. The best thing to do is come up with a conservative estimate and buy as far below that number as possible, hence your margin of safety.
In the end, valuing a stock is part art and science. You're using hard numbers for past earnings and/or dividends, but you're also guessing at a growth rate. You can only assume a reasonable range for valuation. The best thing to do is come up with a conservative estimate and buy as far below that number as possible, hence your margin of safety.